Principal Financial Group has agreed to acquire Institutional Retirement & Trust (IRT), the retirement plan services business of Wells Fargo & Company, for $1.2bn.


Image: Wells Fargo to divest Institutional Retirement & Trust to Principal Financial. Photo: courtesy of Wells Fargo.

As part of the transaction, Principal Financial will acquire Wells Fargo’s defined contribution, defined benefit, employee stock ownership plans, executive deferred compensation, institutional trust and custody, and institutional asset advisory businesses.

The businesses to be divested by Wells Fargo serve a combined 7.5 million retirement customers in the US.

IRT offers total retirement management, executive deferred compensation, investments, and trust and custody solutions that are customized to address the requirements of institutional clients. As of 31 December 2018, the division held $827bn in assets under administration and had nearly 2,500 employees across the US, Philippines and India.

Wells Fargo wealth and investment management head Jon Weiss said: “The Institutional Retirement and Trust business is well-managed, award winning and highly respected in the market.

“The scale derived from a combination of IRT and the Principal Financial Group will benefit clients, plan participants, and team members. At the same time this sale reflects Wells Fargo’s strategy to focus our resources on areas where we can grow and maximize opportunities within wealth, brokerage and asset management.”

Principal Financial, which is headquartered in Iowa, caters to more than 24 million customers with retirement, insurance solutions and asset management.

The company expects the acquisition of IRT to double the size of its US retirement business based on the number of total recordkeeping assets, while enabling it to offer an attractive institutional trust and custody offerings for the non-retirement market.

Apart from the increased scale, the company expects to get a strong foothold with mid-sized employers with a majority of Wells Fargo’s institutional retirement assets in plans ranging from $10m to $1bn.

Principal Financial chairman, president and CEO Dan Houston said: “Retirement is at the heart of our business and core to our future.

“This will be a powerful combination for customers, employees and shareholders as we solidify our place as a top-three leader in the U.S. retirement market. The acquisition will bring expanded capabilities, reach and scale; fueling our ability to compete, invest and grow to help more people to achieve their retirement outcomes.”

The deal also includes an earnout of up to $150m based on better-than-expected revenue retention, which will be payable two years after its closing. The closing of the deal, which will be subject to US regulatory approvals, is expected to occur in the third quarter of 2019.

Lazard acted as the financial advisor and Debevoise & Plimpton served as legal counsel to Principal on the transaction.